As a Pennsylvania resident addresses financial difficulties, bankruptcy might be considered as a way of obtaining relief. Although bankruptcy can facilitate a fresh start in one's finances, the timing and type of relief can vary based on the type of bankruptcy filing selected. Chapter 7 and Chapter 13 both provide opportunities for excessive debt to be resolved, but the conditions and actions are different for each option.
Chapter 7 is a liquidation, whereas Chapter 13 is the creation of a payment plan. In a liquidation bankruptcy, most of one's debts are discharged at the end of the bankruptcy, which is typically completed in just a few months. Under Chapter 13, however, a payment plan is enacted for a period of time that can last from three to five years. Discharge of remaining debts does not occur until this point. In both cases, however, most debt collectors must cease their collection efforts once bankruptcy has been filed.
A liquidation option is not available to all who desire this route to debt relief. Approximately 71 percent of consumer bankruptcies are Chapter 7, but a means test is used to determine eligibility. Those who are ineligible may be able to use Chapter 13 for debt relief. While some assets might be retained during Chapter 7, those that are not exempt must be surrendered. Chapter 13, on the other hand, does not require this surrender if plan payments are made successfully.
In evaluating the options for addressing unmanageable debt, an individual might work with a bankruptcy lawyer to obtain comprehensive information. Additionally, the required credit counseling could also provide solutions for dealing with certain creditors. If bankruptcy is still viewed as the best option, a lawyer can help in coordinating the required paperwork to initiate the process.
Source: American Bar Association, "General Comparison of Chapter 7 and Chapter 13 Bankruptcy ", accessed on March 7, 2015